Social Security: Why 35 Years of Work History Is the Magic Number

Quick Read

• Social Security calculates your monthly benefit using your 35 highest-paid years of earnings, with $0 added for each missing year.

• Working part-time or doing gig work, even after filing for benefits, can replace $0-income years and boost your Social Security payments.

• Read More: Avoid these 13 retirement mistakes before they derail your future (sponsor)

There are plenty of people who collect Social Security in retirement without putting much thought into what goes into those benefits. But it’s important to understand how Social Security benefits are calculated so you can make strategic decisions on how long to work.

Let’s review how the Social Security benefits formula works, and why 35 years of earnings is the sweet spot.

Why it’s best to aim for 35 years of wages

The Social Security benefit you’re able to collect in retirement is based on both your earnings history and your filing age. Your earnings history determines your primary benefit amount, and your filing age determines whether you get to collect that benefit in full versus a smaller or larger amount.

Social Security takes your 35 highest-paid years of earnings into account when calculating your monthly benefits. Within that formula, earlier wages are adjusted for inflation.

What this means, though, is that if you don’t have a work history of 35 years or more, you’ll have a $0 factored into your benefits formula for each year you’re missing wages. Multiple years of missing wages could lead to smaller retirement benefits, which could make it harder to cover your expenses if you don’t have savings or other income streams to rely on.

How to make up for a shorter work history

Let’s say you’re nearing the end of your career and don’t have a full 35 years of earnings under your belt. You might assume you’ll have to accept a smaller Social Security benefit in retirement. But there may be steps you can take to get more Social Security.

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Learn 13 Major Retirement Mistakes and Ways To Avoid Them

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First, you could consider extending your career. Working an extra year or two, especially during peak earning years, could boost your Social Security checks substantially.

Another option is to work part-time during retirement. Whether it’s an hourly job you do a few days a week or gig work where you’re paid as an independent contractor, wages you earn later in life could count toward your Social Security benefits formula. (With freelance work, all you need to do is report your income and pay taxes on it for it to count toward Social Security, which you’re legally required to do anyway.)

In fact, wages you earn after you’re already collecting Social Security could help increase your benefits. If you work part-time after filing for Social Security, those wages will get factored in if they replace years of $0 income.

You’re allowed to earn any amount of money from a job without negatively affecting your Social Security benefits once you reach your full retirement age. If you work while collecting Social Security prior to then, you’ll be subject to an earnings test where you risk having benefits withheld temporarily if your wages get too high.

All told, the Social Security benefit you receive as a retiree isn’t a random number. It’s based on a specific formula that accounts for your personal wage history. If you want a larger retirement benefit from Social Security, make sure to work for 35 years in some shape or form — even if some of those wages end up coming in after you’ve filed.

Help Avoid These 13 Retirement Mistakes Before They Derail Your Future

One investment mistake could create big risks for your retirement. Many investors make the same critical errors: being too conservative, making big bets on “sure things,” or paying excessive fees. Any of those blunders can endanger your hard-earned savings.

Now you can learn the mistakes even experienced investors make (and ways you can sidestep them before it’s too late) with this new guide: 13 Retirement Mistakes and How to Avoid Them from Fisher Investments. (sponsor)

Contact editorial@247wallst.com for any questions or corrections.